SBTC is urging SBA to withdraw proposed SBIR/STTR commercialization standards, warning that the changes could retroactively penalize small research firms, overlook successful technology transfers, and disrupt funding for critical defense innovation.
NSBA's Small Business Technology Council (SBTC) is urging the U.S. Small Business Administration (SBA) to withdraw proposed changes to SBIR/STTR commercialization benchmarks, warning that the new standards could cut successful small research firms off from funding based on business decisions made years before the changes take effect.
In an Oct. 16 comment letter, SBTC argues that the proposed revenue-based requirements would unfairly penalize experienced program participants, overlook established paths to commercialization, and create particular challenges for small businesses developing defense technologies.
The Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs support small businesses conducting research and developing technologies to meet federal needs. At issue is how SBA would measure whether experienced recipients have successfully moved those technologies beyond federally funded research.
New Standards, Past Decisions
According to SBTC’s letter, the proposed benchmark would use revenue from the three preceding fiscal years, with implementation scheduled for Nov. 14, 2026, and an initial determination in June 2027. That timeline could leave firms facing consequences for decisions made in fiscal year 2024 under the standards in place at the time.
Companies falling short could become ineligible to apply for Phase I or Direct to Phase II awards for one year. However, SBTC warns that the rolling three-year measurement period could extend that exclusion across multiple years, disrupting cash flow and threatening the viability of affected businesses.
The concern is particularly acute for companies that would have little opportunity to change their financial results before the first determination.
Revenue Alone Does Not Tell the Story
SBTC also challenges the proposal’s reliance on company revenue as a measure of commercialization, arguing that it would fail to capture the full economic impact of SBIR-funded technologies.
A business may license a technology to another company, spin it out into a separate venture, or sell an SBIR-derived business. Those decisions can bring products to market and generate economic activity without producing equivalent revenue on the original award recipient’s books.
Conversely, SBTC argues, a firm could satisfy the proposed revenue comparison through business activities unrelated to its SBIR-funded research. The resulting measure could reward unrelated sales while overlooking successful technology transfers.
The council urges SBA to retain a broader approach that recognizes licensing, spinouts, joint ventures, follow-on investment, and other commercialization pathways.
Defense Firms Face Additional Constraints
For small businesses developing highly specialized defense technologies, finding additional customers is not always feasible.
SBTC notes that classified work, export controls, and technologies with limited civilian applications can leave firms heavily dependent on the federal government. Changes in defense priorities or procurement funding could then affect a company’s ability to meet the benchmark, even when its research remains important to national security.
The council warns that excluding these firms could undermine efforts to sustain and expand small-business participation in the defense industrial base.
Congressional Direction and Agency Justification
SBTC further argues that the proposal conflicts with Congress’s approach during the latest reauthorization negotiations. According to the letter, lawmakers considered additional commercialization requirements but ultimately retained existing benchmarks and adopted proposal caps that participating agencies could implement.
The council also questions whether the proposed requirements fit SBA’s statutory authority to establish minimum standards and whether the agency has adequately explained its chosen thresholds, measurement period, and narrower treatment of commercialization.
SBTC is calling on SBA to withdraw the proposal and seek additional input from Congress, participating agencies, and small-business stakeholders before pursuing further changes.
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RELATED | Read NSBA's comment letter to the SBA on its recent size standard proposal here.
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Joshua Carter
Associate Administrator
Office of Investment and Innovation
Small Business Administration
Washington, DC 20416
October 16, 2026
RE: SBA Notice of Updated Minimum Performance Standards forSBIR and STTR Programs (Document No. 2026-17987)
The Small Business Technology Council (SBTC) stronglyobjects to the SBA’s proposed rule titled “Updated Minimum PerformanceStandards for Commercialization for Firms That Receive Funding Through theSmall Business Innovation Research (SBIR) and Small Business TechnologyTransfer (STTR) Programs”. The proposedchanges to the benchmarks would introduce a retroactive and severe punishmenton a small group of targeted small businesses that would create an immediate anddamaging effect on their companies, while producing no discernable benefit forthe agencies, the warfighter, or the taxpayers. Further, we believe that these proposed changes are contrary to both theintent of Congress, which considered and negotiated over similar changes tocommercialization benchmarks for over a year, before ultimately rejecting themin favor of proposal caps, and to the previous direction by SBA driven byCongressional guidance as to what constitutes commercialization.
The Proposed Benchmark is Retroactive and Unfairly Punitive
The proposed benchmark calculates a small business’ revenuesfrom the previous three fiscal years preceding the current year. It is also scheduled to go into effect onNovember 14, 2026, with a first determination made in June of 2027. This means that actions and businessdecisions a small business made in FY2024 that were fully compliant with thelaw and SBIR regulations could be ruled as noncompliant in FY2027, and resultin the small businesses being banned from participating in the SBIR program. Given the short implementation period, thereis no way for any firm not currently compliant to come into compliance.
And while the punishment for failure to meet this benchmarkis being banned from applying for SBIR/STTR Phase I or Direct to Phase II for ayear, this could easily become a multi-year ban due to the three-yearlookback. Small businesses are heavilydependent on cashflow, and many don’t survive having an important source offunding cut off without warning for several years.
The combination of retroactivity and the severity of thepunishment makes the proposed benchmark extraordinarily punitive, targeting agroup of small businesses that have done nothing wrong, and given them noopportunity to correct or alter their business practices before facingpunishment. Firms that have compliedwith the law and regulations could be severally harmed or put out of businessfor actions that were lawful when they were done. The intention seems not to influence futurebehavior, but to punish and exclude small businesses for being too successfulin the past.
The Proposed Benchmark is Contrary to Congressional Intent
Congress has weighed in on commercialization benchmarks ineach of the 4 previous reauthorization efforts:
In 2011, Congress established benchmarks forcommercialization, requiring agencies to set them and SBA to oversee andestablish de minimis standards
In 2016 Congress made no changes to the benchmarks butextended the authority for them by 5 years
In 2022 Congress established enhanced standards forexperienced firms, requiring small businesses with over 50 and over 100 phase 2awards to show greater commercialization returns
In 2026 Congress made no changes to commercializationbenchmarks, but extended authority for both the regular and enhanced benchmarksby 5.5 years.
When Congress wanted to increase standards for experiencedfirms, they did so by including the requirement in statute in 2022. During the last reauthorization effort,several proposals to further increase commercialization benchmarks werediscussed, including language that was similar to what the SBA hasproposed. After about a year ofcontentious negotiations and a nearly six month lapse in authority, Congressultimately decided not to increase benchmarks, and instead introduced aproposal cap that the participating agencies could choose how to implement.
Congress has already made its position clear in 2026: theessence of commercialization benchmark language that the SBA is currentlyproposing to implement was debated in Congress for over a year, and wasultimately rejected. The reauthorizationthat was passed included an extension for both the original benchmarks and theenhanced benchmarks, but with no changes to either. As House Small Business Committee ChairmanWilliams said in a hearing on SBIR reauthorization in 2025, it was important toCongress to ensure that “these programs are awarded by merit after rigorouscompetition will continue driving the best innovations to the top. Innovatorsthrive in an environment where competition reigns supreme, where they are freefrom limitations or caps on their success.”1
Additionally, the authority that SBA is using to update thisbenchmark – 15 USC 638 (qq)(4) – authorizes the SBA only to set de minimisstandards. These are standards thatother agencies must treat a baseline, and this authority is intended byCongress to provide SBA with oversight to prevent agencies from settingstandards so low that they are effectively nonexistent. The SBA fulfilled its obligation in settingand promulgating de minimis standards in 2013. Since then, there has been no indication from Congress that thesestandards are inadequate, and no imperative or suggestion from Congress thatthey should be revisited or modified by SBA.
The SBA’s proposed benchmark goes well beyond any reasonableinterpretation of de minimis, imposing a standard far beyond even what Congressincluded in the law in 2022, when they established the “enhanced standards forexperienced firms”, and uses a newly introduced commercialization definitionthat contradicts the prior SBA measures. The 50% revenue requirement would effectively triple or quadruple eventhe most stringent enhanced benchmark standard, while also restricting the typeof commercialization that a company can demonstrate.
The use of the USC 638 (qq)(4) authority to impose the newproposed benchmark is spurious not only in revisiting and reusing an authoritythat SBA already fulfilled, and that Congress was satisfied with, but also bystretching the definition of de minimis beyond reason. The effect is that SBA is substituting itsown judgement for Congress’s.
The Proposed Benchmark Measures Revenue, NotCommercialization
The SBA refers to this proposed rule as a “commercializationbenchmark”, but the measurement it uses as a proxy for commercialization –comparing Phase 1 & 2 funding to non-SBIR revenue – is deeply flawed andwill not work effectively to determine if a company is commercializing itsSBIR-developed technology. It iscontrary to the array of commercialization measures previously defined by SBA,and that SBIR companies have relied upon, as their commercialization strategieshave been developed in a variety of approaches that fit differing businesssituations. The SBA should not befavoring some approaches to commercialization under a new metric andretroactively applying it to small businesses who complied with a longstanding,well-established commercialization framework from the SBA, simply because theyare easier to measure. This wouldunfairly and arbitrarily foreclose other previously endorsed approaches thatmay better fit America’s productive commercialization environment.
In the first place, it does not include forms ofcommercialization that are not captured by a company’s revenue, such asthird-party revenue from licensing and spin-offs. A company that may have made a business decisionyears ago to spin out an SBIR-funded technology into a new company focused onbringing that technology to market may now be excluded from the program becausenone of the revenue from that new company would be credited to the firm thatreceived the SBIR. A company that twoyears ago sold an SBIR-derived business finds no recognition of this in thepast year’s sales. Yet the commercialreturns from that SBIR funding still exist, and the resulting products andservices still benefit the US economy.
Additionally, the proposed benchmark makes no distinctionbetween revenue derived from SBIR developed technologies and revenue thatisn’t. As long as the non-SBIR revenuefrom a small business is equal to or greater than the amount of SBIR revenue itmakes, it wouldn’t matter at all if any or none of that non-SBIR revenue wasderived from successfully transitioned SBIR-developed technologies. The proposed approach undermines thefeasibility of innovative small businesses who specialize in research anddevelopment.
If SBA wishes to accurately determine how much a small business is commercializing its SBIR-developed technologies, it needs to broaden its scope to look beyond just annual revenue. The government (including SBA) defines the commercialization stage of SBIR, Phase III, very broadly, including any work that derives from, extends, or completes an effort made under priorSBIR/STTR. This would include follow-oni nvestment that derives from, extends, or completes an SBIR-funded project. Phase III revenues include many forms of commercialization not fully captured by the SBIR company’s annual revenue, including joint venture sales, third parties under license, spinouts, subcontracts, third party licensing revenue, etc.
Relating to licensing, the best route for commercializationmay be through licensing with large businesses resulting American economicbenefit from licensee’s sales, yet the license fee itself ignores the impact onthe economy and has only a minor impact on the small business’s revenues andsuccess measure. SBA’s implementation ofprevious commercialization benchmark standards looks at all of these kinds ofcommercialization, and companies have for decades been following this fullrange of commercialization approaches with great success. SBA has not provided an explanation for whyit is now narrowing the calculation of Phase III results and its definition ofcommercialization success.
The Proposed Benchmark Particularly Targets Small Businessesin the Defense Industrial Base
Small businesses that focus on defense-related technologieswill particularly be burdened by this proposed benchmark. In many cases, the technology needed by theU.S. Department of Defense (DOD) is highly specialized and has little to nocommercial application. Additionally,defense work is often either highly classified, or subject to ITAR and otherrestrictions that make developing commercial markets impossible.
This has the net effect of leaving the many defense smallbusinesses dependent on 1 customer – the US Government. If that customer suddenly shifts itspriorities, or if funding is moved from one part of the DOD to another, thesmall business has little opportunity to develop other customers, yet the DODapplications may be critical to national defense. In this way the small business could besignificant for national defense yet fall below the benchmark not because ofany business decision, but simply because of the SBA’s proposed benchmark andpolicy or funding decisions by the government it has no control over.
The Proposed Benchmark is Arbitrary and Capricious
The Federal Register notice regarding this benchmarkincludes no analysis or justification for why these parameters were chosen, orwhy SBA has chosen to change its standards now. No description of substantive agency inputappears in it, and SBA does not explain or even attempt to justify in thenotice that firms receiving more than 25 Phase II awards are notcommercializing enough. There is nomethodology explaining why 25 awards, non-SBIR revenue of 33% and 50%, or athree-year measurement period are economically meaningful, or why the measuresof success have been completely revised contrary to long-standing agencypolicy. There has been much less thannormal notice provided, potentially less than is required by statute.
This proposed change could have a damaging effect on anumber of small businesses, and yet it seems very haphazardly written, lackingmany standard components of a proposed regulation, such as a RegulatoryFlexibility Act Analysis, the Paperwork Reduction Act, an Executive Ordercompliance statement and other required documents. The businesses that are being targeted havedone nothing but provide the government with the research and technology thatit needs and has asked for. The numberof Phase II awards they have won is indicative of their success and expertise,as well as the reputation they have gained in providing their governmentcustomers with high-quality research and technologies. Given the impact that this proposed benchmarkwould have on small businesses, such action should not be taken withoutdirection from Congress, more explanation and justification should be providedto explain why these businesses should be harmed, and greater effort should bemade to developing a more considered benchmark.
Summary
The benchmarks proposed by the SBA would impose a policydecision that was deliberated, negotiated, and ultimately rejected by Congressduring the last reauthorization. Itspuriously uses a statute in the law from four reauthorizations cycles ago toimpose a retroactive and extraordinarily punitive standard on a group of smallbusinesses, without explanation for why it is imposing this standard, whatissue or problem it is intended to address, or how the benchmark will meetregulatory requirements and improve the SBIR/STTR programs. The proposed benchmark will particularlydamage small businesses that have focused on defense-related research andtechnologies, in a time when the small business defense industrial base isshrinking, and the DOD is trying to encourage more small businesses to workwith them.
The Small Business Technology Council recommends that theSBA withdraw this proposed benchmark and seek more input from Congress and fromstakeholders before making further changes to the commercialization benchmarkthan what is in the law.
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The Small Business Technology Council (www.SBTC.org) is thenation’s largest association of small, technology-based companies in diversefields. SBTC advocates on behalf offirms who participate in the Small Business Innovation Research (SBIR) andSmall Business Technology Transfer (STTR) programs, and other issues involvinghigh tech small businesses.